Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.

Tuesday, April 10, 2012

Greece uncertainty , the spanish Minister for the Economy says he cannor rule out a bailout for Spain , Spain and Italy blaming each other for their respective problems - Europe plays catch up this morning after being closed on Monday !

11.39am: Spain's borrowing costs have been rising all morning, as it moves centre stage in the eurozone debt crisis. Yields on the 10-year bond have risen to 5.938%. Here's some analysis from Jane Foley, currency strategist at Rabobank:

Spanish bond yields have continued to push higher this morning despite reassurances from the Spanish PM Rajoy that the country is committed to reducing the country's budget deficit to 3% of GDP next year. The market's clearly negative response to Spanish budget was met over the weekend by commitments from the government to make another €10bn of savings mostly in health and education sectors. Right now the Spanish government appears to be losing the battle to restore budgetary credibility while each additional austerity measures serves to feed the recessionary backdrop.

She also points to the possibility of a hung parliament in Greece:

Over the next few weeks Greece can be expected to push back into the headlines; once again for all the wrong reasons. Opinion polls are pointing to the likelihood of a hung parliament and to the rise of several small opposition parties all of whom oppose efforts to enact structural reform. The issue of whether or not Greece has a long term future within the Eurozone could become more relevant than ever over the spring and summer. While the risk of contagion from Greece should now be fairly well contained, it is impossible to rule further shockwaves being sent through the region.

11.31am:@TradeDesk_Steve (head of dealing at London & Capital Asset Management) has pointed out an interesting Greek poll out today, which suggests Greece may be in for a bout of political instability. He says:

Only 32.4% pledged support for the PASOK party led by Evangelos Venizelos or the New Democracy led by Antonis Samaras, which both form part of the current interim government.

However, a greater number - 34.2% - pledged support for the smaller parties that oppose austerity measures.

A party or coalition needs 40% of the vote to form a gvt. A period of political instability is looking increasingly likely.

10.45am: News in from Athens where our correspondent Helena Smith says the government is playing down the bomb attacks of recent days.

There will be an official announcement about the date of Greek elections tomorrow, still widely expected to be held on May 6. Helena reports:

An aide close to prime minister Lucas Papademos said the explosive devices were "home-made firebombs" traditionally used by young hoodies protesting against unpopular austerity measures the government has adopted in exchange for aid. "We know there are groups out there hitting such targets," said the official "but they are not human targets." The attack against the political office of former socialist prime minister Costas Simitis, who led Greece's entry into the eurozone, was of more concern, he said, because there had been no prior warning.

Another well-briefed source said he did not expect trouble during the elections. He confirmed that an official announcement would be made late Wednesday as to when Greece would be going to the polls. "The elections are the opportunity for people to make their voices heard, to let off steam, and 99.9% they will held on May 6th."

He said there may be problems after the election if no single party wins outright and the two main parties [the centre right New Democracy and centre left Pasok] are unable to form a government. In that case, he suggested current technocract prime minister Lucas Papademos, a former vice president of the European Central Bank, might be forced to come in and "resolve what politicians are unable to do".

"At the moment he very much hopes that is not the case. He wants to go back to academia."

10.38am: Spanish bond yields continue to rise, reaching heights not seen since November (5.86% on 10-year bonds at the moment). Giles Tremlett, our man in Madrid, reports:

As Spain's bond yields soar, the government is desperately trying to push through new measures. Yesterday's announcement of more than €10bn in health and education "savings" in Spain should help regional governments, which run these services, get closer to cutting their combined share of the deficit from 2.9% of GDP to the target of 1.5% (about €15bn altogether).

There are no details (and we do not know if the €10bn is spread over one year or more), but they will presumably contain a mix of increased fees (possibly at universities) and cuts in public health provisions. As ever, though, the regional government accounts are tricky to calculate.

The junior minister for public administration, Antonio Beteta, said yesterday that the regions had already presented plans for €10bn in savings for this year. But Beteta also said he believed Andalucia, the large southern region, is lying about the size of its deficit. Andalucia has a problem with "transparency and credibility" he told Onda Cero radio station. This week the government plans to push through parliament a law allowing it to intervene directly in regional governments if they fail to meet targets.

10.27am: Ferry workers in Greece started a 48-hour strike today, ahead of its celebrations for Orthodox Easter this coming Sunday (thanks for comments pointing out the Greeks celebrate Easter a week later than us).

The Panhellenic Seamen's Federation, PNO, stopped work after failing to reach a compromise with the government over benefit cuts. PNO says many of its members have not been paid for months.

Greek ferry workers begin a 48-hour strike at the Piraeus port near Athens. Photograph: John Kolesidis/REUTERS

Representatives of Greece's tourism industry said the potential consequences of the protest were "disastrous."

10.20am: Eurozone leaders are playing the blame game again, as noted by the FT's Brussels bureau chief:

9.44am: Just to clarify, the bomb in Athens mentioned below caused some damage to the building but no injuries. AFP reports:

A home-made firebomb exploded in the early hours of Monday in Athens in front of a building housing offices of Greece's administrative reform ministry, police said. The explosion at 1:52am (local time) in front of the ministry annex started a fire that seriously damaged the building's ground floor and a car parked nearby.

The minister for administrative reform, Dimitris Reppas, recently announced a series of measures to slash the number of government workers.

A woman walks in front of the Administrative Reform ministry building in Athens, which was hit by a fire-bomb on Monday. Photograph: John Kolesidis/REUTERS

Last week, another bomb exploded outside the office of former Greek prime minister Costas Simitis, who led the country's efforts to adopt the euro in 2002. A policeman said at the time: "It caused just small material damage, nobody was hurt or in danger."

9.26am: The governor of Spain's central bank is also talking this morning. Miguel Angel Fernandez Ordonez said a strong recovery of the Spanish economy is unlikely in the short term. And, if the economy continues to deteriorate, he said more capital would be needed for the banks.

The cost of insuring against a Spanish default is getting close to its record high. Spanish credit default swaps rose 16 basis points to 4.78% this morning, compared to a high of 4.87% in November last year.

9.23am: The Spanish minister for the economy has also said Spain may sell off public real estate.

Luis De Guindos has given a string of interviews over the past week, where he has stressed the country's commitment to reform. Spain is under pressure from Europe to rein in spending, as fears mount that the region's fourth biggest economy may need a bail-out.

Spanish economy minister Luis de Guindos and head of the eurogroup Jean Claude Juncker in Brussels. Photograph: Isopix / Rex Features

De Guindos caused a ruckus yesterday when he said that Spain is considering charging the rich for the public health service, which is currently €15bn in debt.

We need to open the debate in the central government and among the regions on whether the health service should be free for someone earning €100,000.

He added that Spain's government isn't planning to increase the country's relatively low valued-added tax this year, noting that a VAT hike in 2010 was not effective.

8.47am: Here we go again... the Spanish minister for the economy, Luis de Guindos, has said he will not rule a bail-out for Spain, according to Bloomberg's economics editor.

7.53am: Spain's government yesterday announced plans for more cuts. Christian Schulz at Berenberg notes:

Together with the regions, the central government wants to make €10bn of savings per year in education and health. The cuts would come on top of the €27bn deficit reduction plan announced in March. If the government can agree with the regions on these additional cuts, they may partly fill the €15bn gap the regions need to close to fulfil their deficit target of 1.5% in 2012.

The strong fiscal tightening this year to cut the deficit from 8.5% to 5.3% may stoke fears of a deeper recession and potentially a Greek-style downward spiral in Spain.

Spanish sovereign debt fell in value again this morning, pushing up the yield (the measure of the interest rate) on its 10-year bonds to 5.8% this morning. The difference between the yield on Spanish and German debt is at its greatest since November, with a spread of 4.1%.

Yields on Italian and Greek sovereign debt also rose to 5.51% and 22.1% respectively.